17. Consider a binomial world in which the current stock price of 80 can either
ID: 2773971 • Letter: 1
Question
17. Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. The exercise price is 80 for a call. Assume a two-period world. What is the hedge ratio if the stock goes down one period?
0.00
0.0725
1.00
0.73
none of the above
18.
Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. The exercise price is 80 for a call. Assume a one-period world. What is the hedge ratio?
0.429
0.714
0.571
0.823
none of the above
20.
Options on futures are also known as
spot options
commodity options
exchange options
security options
none of the above
23.
Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. The exercise price is 80 for a call. Assume a one-period world. What is the theoretical value of the call?
8.00
4.39
5.15
5.36
none of the above
24.
All of the following are practical applications of the binomial model except
choices regarding real options
options regarding executive incentive plans
models in which the stock price can go up, down, or remain constant in the next period
embedded options within debt securities
none of the above
25.
The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as
longing an asset
asset flipping
shorting
anticipated price fall arbitrage
none of the above
0.00
0.0725
1.00
0.73
none of the above
18.
Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. The exercise price is 80 for a call. Assume a one-period world. What is the hedge ratio?
0.429
0.714
0.571
0.823
none of the above
20.
Options on futures are also known as
spot options
commodity options
exchange options
security options
none of the above
23.
Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. The exercise price is 80 for a call. Assume a one-period world. What is the theoretical value of the call?
8.00
4.39
5.15
5.36
none of the above
24.
All of the following are practical applications of the binomial model except
choices regarding real options
options regarding executive incentive plans
models in which the stock price can go up, down, or remain constant in the next period
embedded options within debt securities
none of the above
25.
The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as
longing an asset
asset flipping
shorting
anticipated price fall arbitrage
none of the above
Explanation / Answer
I would like to answer backwise:
answer for question number 25:
The answer is SHORTING. Because you short an asset without even holding it with an intnetion that it would fall down and later u will purchase . Example in equity/Cash segment if a price of a shae is $20 and u expect it would fall to $ 18 you would sell the asset i.e short an asset with an intention of buying it in future later at $18.
Answer for 24:
Embedded options with debt securities because binomail is an assumption basis plan
Answer for 20 :
Options on future is also known as COMMODITY OPTIONS / FUTURE OPTIONS : because you go for a call or a put option of a future and future could be a commodity therefore it is a commodity option
You can use the black schole formula
d1 = ln(S0/X) + (r + 2/2)TT d2 = d1 - TRelated Questions
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